Euro climbs amid speculation Cyprus contagion will be contained

The euro rose from near a four-month low against the dollar amid speculation Cyprus is moving closer to a deal to stave off financial collapse and prevent contagion from infecting the rest of the region.

Europe’s shared currency climbed versus all of its 16 major peers after the Greek Finance Ministry said the country is working closely with Cyprus to stabilize the banking industry. Marios Mavrides, a lawmaker with Cyprus President Nicos Anastasiades’s ruling Disy party, said the government must pass legislation to protect the island nation. Asian currencies slipped for a fifth week, the longest losing streak since June.

“People are reluctant to head into the weekend short euros just in case we get a deal,” said Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London, referring to bets the currency will decline. “There may be expectations that Cyprus will be creeping closer to some kind of a deal. If we do get something over the weekend there will probably be a rally next week.”

The euro climbed 0.4% to $1.2956 at 8:20 a.m. New York time, after falling to $1.2844 on March 19, the weakest level since Nov. 22. It strengthened 0.4% to 122.87 yen, after dropping as much as 0.8%. The yen was little changed at 94.83 per dollar.

Euro-area finance ministers expect a proposal from Cyprus “as rapidly as possible” to raise the 5.8 billion euros needed to trigger emergency loans, they said in a statement after a teleconference yesterday. The search for a compromise comes after a week of tumult marked by Cypriot lawmakers’ rejection of a proposal for an unprecedented tax on bank deposits.

Weekend ‘Uncertainty’

Europe’s shared currency headed for a 0.9% drop versus the greenback for the week and 1.4% decline against Japan’s currency.

“Our base-case scenario is that an agreement will be reached,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s a lot of uncertainty as we head into the weekend.”

The euro may climb toward $1.30 if a deal is found on Cyprus, Hardman said.

The European Central Bank said today that financial institutions will repay 1.94 billion euros of three-year loans on March 27, down from 6.82 billion euros the week before. That takes the total amount of money repaid early to 237.7 billion euros, or 23 percent of the overall lending.

The ECB flooded financial markets with three-year loans totaling more than 1 trillion euros a year ago after banks stopped lending to each other because of Europe’s debt crisis. Banks now have the option of repaying the loans, which were offered at the average of the ECB’s benchmark rate over their duration.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active currencies in the region excluding the yen, dropped 0.13 percent since March 15.

Overseas investors pulled $2.4 billion from Taiwanese, South Korean and Thai stocks in the first four days of this week, exchange data show.